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  • Zdjęcie autoraJarosław Jamka

The Mighty Consumer!

On September 25, we got the latest data on the debt burden of the American consumer (i.e. household debt service ratio - DSR). DSR is the ratio of total required household debt payments to total disposable income.


Interestingly, despite the Fed rate rising above 5%, the average (counting from the first rate hike) DSR is practically lower than before Covid. The average DSR from 2015 to 2019 was 11.7%, while the average DSR from Q1-2022 was 11.0% - see Figure 1. No wonder the American consumer does not intend to reduce their spending.. despite the FED’s rate increase to 5%!



Figure 2 shows a longer period.. since 1980. It is clearly visible that in previous cycles, the rising Fed rate caused an increase in DSR. Figure 3 shows that in both … the rate hiking cycle in 2015-2018 and 2022-2024 ... DSR did not increase!




The DSR is divided into two parts. The mortgage DSR (total quarterly required mortgage payments divided by total quarterly disposable personal income) and the consumer DSR (total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income). The mortgage DSR and the consumer DSR sum to the DSR. See Figure 4.



If rising rates do not translate into rising DSR.. then the US economy remains stronger and the market is more likely to play a soft landing scenario. This was the case in 2019, when the S&P500 increased by about 19% from August 2019 (we were already after the first rate cut by the Fed) to February 2020!



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